10.

4 FINAL EDITION
BY NANNINGBOB FEB. 2013
INDEX TABLE
INTRODUCTION PAGE 2

SOME STUFF YOU NEED TO KNOW BEFORE WE START PAGE 3

PERSONAL HUMAN JUNK PAGE 5

WHAT THE HECK IS A TREND ANYWAYS? PAGE 6

ENTRANCES 4H CHART PAGE 10

ENTRANCES PART 2 THE ENTRANCE INDICATOR PAGE 12

10.4 BUY TRENDING TRADES PAGE 14

10.4 INFORMATION PAGE PAGE 19

10.4 SELL TRENDING TRADES PAGE 20

LET US REVIEW TRENDTRADING PAGE 27

MONEY MANAGEMENT PAGE 29

10.4 MM INDICATOR PAGE 33

DIVERSIFYING YOUR TRADING PAGE 35

RANGE TRADING PAGE 38

THE SEVEN DEFINITIONS PAGE 42

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INTRODUCTION

I promised a trader that I would write this edition in a way you would not have to go to any
other editions to understand what I am trying to say. Even though I may mention other
systems they were all learning formats to this one. In 10.4 I have attempted to define all the
basics of trading. It will be a stand-alone system by itself even though you may add or subtract
what you already know from your own familiar tools in trading.

When I started the 10.0 series it was to finally define all the terms into specific events on a
chart. I started on a 1H chart, defined a trend and away we went. Then we progressed to the
4H, daily, weekly, and finally now the monthly chart to determine trend direction. I think I will
really open some eyes when I show you what I have learned. A lot of things I had heard in
trading began to finally make sense.

Trade in a way to trade another day

Let your winners run

Buy the dips in an up-trend

Sell the rallies in a down-trend

Follow the trend

The trend is your friend (YEAH RIGHT)

Trade low leverage

Sometimes the best trade is not to trade

Make sure you have a win to loss ratio of (take your choice) 2:1, 3:1, 1.5:1

etc. etc. ad-nauseam; add your favorite phrase here: ___________________!!!

All those phrases dont mean anything unless they are defined to a point you can actually do
them. Imperfect as I maybe (just ask my wife, she will tell you) I finally decided to attack this
problem 2 years ago and the whole 10.0 series is my journey to that end. Thousands have
followed given their opinions and added to my knowledge. Others have spent long hours
writing programs, indicators, EAs, etc. only to find out that these added to my knowledge and I
made more changes. I am sure there are some that don't want to deal with me anymore. Yet I
am totally grateful to their contributions over the years. I am even grateful to a guy named Bill
who came onto one of my threads and told me I could never trade like that and be a winner.
So the next year I posted my trades every day to show him I could. Wasn't always easy but
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that was the way it was. People respected me because I laid out my trading plan everyday and
showed up the next day whether I was a winner or a loser. One April I made over 4000 pips,
the next month I lost almost 3000. The guys in April thought I was great; the guys in May
thought I was the biggest loser. I still made almost 20,000 in pips that year. But I wasn't happy
with that because that system had a flaw when the markets became very volatile. So I started
the 10.0 series and started with a simple question. What the heck is a trend anyway?

SOME STUFF YOU NEED TO KNOW BEFORE WE START

Before I start please refer to Dark Stars thread on what is the Forex market. This is so valuable
that you understand what you are trading and the atmosphere you are trading in. His insight
will get you through the rubbish that is often presented in Forex forums.

http://www.forexfactory.com/showthread.php?t=7484

Simply put Forex is about the exchange of money between nations, corporations, businesses,
and individuals and can produce over 3-5 trillion dollars a day in exchanges. What it is not
about is traders or investors. The stock market is moved by traders and investors but not Forex.
It is important you understand this because you must realize that at anytime Company A from
Country Z will exchange money from Company B in Country X. I mean just look at the volume
of oil that is sold in one day and that is only one product. Oil is billed out in USD so if China
buys x amount of millions of barrels of oil a day from Iraq multiply those millions of barrels by
80-100 dollars per barrel. Then exchange the RMB to dollars to pay for it and then Iraq
exchanges those dollars into Iraq currency and that is only one exchange on one product. Get
my drift. This way you wont fall for an article written like this:

Speculators Keep Boosting Their EUR Longs for the 4th Consecutive Week

Traders added another 40% to their long EUR bet this week after increasing it by 30%
last week to reach a total of $6.4 billion as of Tuesday.

Please understand, knowing the big dogs are buying the Euro is good knowledge to have, even
though that info is a week old, (after the fact don't help me much if they start selling off after I
start buying and find out the next Friday they had been unloading while I was buying). But 6.4
Billion in Forex is a drop of water compared with the trillions being exchanged every day. My
point is this; traders do not control the market and when they enter in large amounts they
only affect the market for 15 minutes to several hours at best. So what makes the market
move and what causes trends?

Before I answer that let me explain how I lay out the different types of traders as I have come
to understand them. Usually there are 3 groups of traders mentioned in most articles.

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1. TECHNICAL ANALYSIS TRADERS:

These are traders who use indicators to make decisions to trade, when to exit and
enter. There are thousands of different kinds of indicators but they usually fit into two
groups.

a. Indicator that move and are based on moving averages with some kind of math
formula and then the conclusions put on the chart or indicator screen i.e.
Stochastic, MACD, moving averages, etc.
b. Indicators that don't move and are static but these are usually based on a
previous high low like Fibs or pivots, S/R lines, trend-lines, etc.
c. There are also traders who say they trade naked but that is because they form a
picture in their head of a pattern or line break. I could trade a clear chart also
looking for breaks in the previous high/low, trend-line, or some kind of pattern.
2. FUNDAMENTAL-TRADERS

I divide these into three groups:

a. News traders, they wait for news announcements and trade the direction the
news takes price action. In other words they wait to see which direction the big
boys are going and jump on board based on previous knowledge of what the
news did in previous cases. They refer to themselves as fundamental traders but I
don't. They are news traders and should be separated from true fundamental
traders.
b. Short term fundamental traders; know certain events will move a currency for
several days or weeks. For example, if a country increase/decreases interest rates.
This will usually move a currency pair anywhere from 3 days to several weeks
depending on how big the rate change was. They are also knowledgeable of how
different events will move the market. I admire this group but have never been
able to develop their techniques into trading.
c. Long term fundamentals, this is the direction a currency pair will go for months or
even years and is usually caused by govt. policies. See pic below of the EUR/USD
during the Bush years. If you had purchased euros at the beginning of his
presidency and hung on until near the end before the big economic collapse of
2008. You would have doubled your money. Not following long term trends
caused me to lose money in my early years of trading because I was shorting the
euro too much back then. Knowing this is the beauty of 10.4 and it is a very
simple read. You would have known not to have sell trades from Feb. 2002 to
May 2003 for a 15 month period but you would have known to just keep riding
the long term trend. If you follow the 10.4 formula you would never have taken a
SL and all your trades would have been profitable or would be a break even trade
during this time. 10.4 is going to follow these long term trends and you will be

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 able to profit from them. The average currency pair will only change directions 2
or 3 times a year so stick with the long term trend like the big boys do.

3. Those that use a combination of both technical analysis and fundamentals.

a. This is going to be us with 10.4 but we will use a very simple indicator to
determine the long term fundamental trend and we wont need to know the
information that is actually driving this long term trend. We will spot it with
technical analysis and adjust our trading accordingly.
b. So without knowing the driving fundamental of a currency pair, which is usually
caused by long term govt. policy, we are just going to trade it and let the
fundamental traders follow the news.

PERSONAL HUMAN JUNK

This is always the most important and valuable part of any gurus booklet. Whenever you read,
are solicited, or buy some gurus trading stuff he always puts several pages of stuff of how he
was a failure until he learned some great secret and for $ xx.xx you can now have the same
secret formula he made his millions at. So the next paragraph is my interesting story I am so
sure you want to hear.

Blah, blah blah, hmm . . And so on and so on blah blah, my dad taught me . Blah,
blah, so on and so on then my mom .. Blah, blah .. Then one day I met this
friend who told me his secret and blah, blah . So on and so on .. So now today I
have 3 Mercedes, a yacht, met the President .. blah, blah, blah and you can now too
have blah blah, blah and then you can travel to . Blah, blah and
then . Meet the most beautiful .. And have sons and daughters
who .. blah, blah so on and so on etc. etc. blah blah. So quit being a loser
and . Blah blah, blah. So now pretend we are on page 25 of this 30 page book he told
us was chock full of secrets. Sorry just had to get that out of my system.

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WHAT THE HECK IS A TREND ANYWAYS?

I dare you to try this one. Go to any Forex thread or forum and ask this question. What is a
trend? I mean everyone will tell you to follow it, trade by it, go by it, and but try to
get a definition of a trend. Really? Try it some time. I have looked all over Forex Factory for a
clear trade-able definition of a trend. You would think that something so fundamentally
essential and so talked about that somewhere, someplace, someone would tell you what a
trend is; where it starts and when it ends. That was my journey for 10.0, here is my conclusion
to this quest. My definition is:

A TREND IS THE LONG TERM MOVEMENT OF A CURRENCY USUALLY CAUSED BY

GOVERNMENT POLICY AND CAN BE EASILY SEEN ON A MONTHLY CHART.
There I did it, now go trade. Let me show you. I will show an example from every major
currency group. Notice the yellow line in each picture. It is the 2MA OPEN on a monthly chart.
Buy above and sell below the yellow line. Even in congestion or slow times it will bias up/down
from that 2MA line on the monthly.

JPY represented by the AUD/JPY

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AUD represented by AUD/USD 15 times in 5 years with the last 7 months just flat.

EURO and USD represented by EUR/USD monthly chart 5 years 13 changes in direction.

NZD and CHF represented by NZD/CHF, 11 times in 4 years.

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CAD represented by USD/CAD, 17 times in 5 years.

Yes there are areas where price action ranges but we will clear up some of this on the 4H chart.
The bottom line is on average, a trend will change on a currency 2-4 times a year. What that
means is 2-6 months of staying with a trend either buying only or selling only.

LONG TERM TREND ON THE 4H CHART BUY ABOVE/SELL BELOW

To get the long term trend on the 4H chart we do some math. It goes like this: 2MA monthly x
4 weeks in a month = 8MA x 5 days in a week = 40 MA x 6-4H candles in a day = 240 MA on the
4H chart. It looks like this on the GBP/JPY:

The 10.4 trading rule is very simple, BUY above the line and SELL below the 240 MA line. In the
Example above you would be looking at buying regularly for over 4 straight months and it is
still going strong. Make the 240 MA your SL line and you have potentially 3 SL in 4 months.
Add a % to 2% max loss on a trade and you keep your losers very small. 10.4 will build its
winners and increases profit by adding to a winning position. We will get that later.

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GBP/JPY has 5 months of UT now (see the blue arrow). This is the monthly chart; the previous
chart was the 4H.

AUD/CHF 15 months of UT in 2009 & 2010. How many SL were hit by people trying to short it
during this time. We wont be shorting it during that kind of run. Remember the GBP/JPY
above? If one currency is going up then some other currency needs to be going down. 5
MONTHS OF DT NOW. What is hard to see in this pic is the candle wicks above the line on the
monthly. These are easily seen on a 4H chart. First the monthly pic of the AUD/CHF.

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Now the 4H pic of the AUD/CHF. I colored in light blue the areas that were wicks on the
monthly but you can see plainly here in the 4H. We will get into these trades later and how
certain filters will help you.

What I want you to see is how the 240 on the 4H closely resembles the 2MA on the monthly.
However, it is more dynamic since it will continue to move with price while a 2MA monthly
would be static. It gives us a better representation of what the long term trend is doing and
our ability to adjust with it as price moves.

ENTRANCES 4H CHART

Entering on the 4H chart will require confirmation form several sources. First there is the
weekly pivot line (WP-Gold colored line) and weekly support 1 (WS1-green colored line) and
weekly resistance 1 (WR1-orange colored line). They look like this on the screen. They are
labeled in red and have the distance in pips from price to the line.

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Also on the screen are the mid-pivot lines which are between the WR/WS/WP. They are
harder to see because they are dotted lines. There are 2 above the WP (weekly pivot line and 2
below the WP).

Combined the WP/WR1/WS1 which are the 3 solid lines and the 4 mid-pivot lines which are
the dotted lines. They will give you 7 entrance points for trading. These lines will automatically
set at the beginning of each week.

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With the 240 MA line a trade chart on the 4H will look like this. Remember above the white
line buy only and below the white line sell only. These lines are called WP (weekly pivot gold
solid line) WR1 (weekly resistance 1 orange solid line) WS1 (weekly support 1 solid green line)
WMR1 & WMR2 (weekly mid pivot lines resistance dotted orange) WMS1 & WMS2 (weekly
mid pivot lines support dotted green). The white is the 240 MA which approximates the
monthly 2MA OPEN.

SO FAR ONLY ONE SIMPLE RULEBUY ABOVE THE WHITE LINE;

SELL BELOW THE WHITE LINE.

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ENTRANCES PART 2 THE ENTRANCE INDICATOR

At the bottom of the chart is a unique, one of a kind indicator designed just for 10.4. It is a
combination of 3 indicators put into one window and they make a great filter for entrances
and taking profit. I thank CMeade for showing me the RSI 2 inside the TMA slope indicators
and I added the AO awesome oscillator.

Price is above the 240 MA so UT (uptrend) The AO (awesome indicator) is below its own 0 line
( light blue boxes) so your entrance numbers are marked 1 & 3 and when the bar turns orange
#2 & #4 you should close your trade. So that is a simple rule. You should be in the trade at
green and out at orange. This is the first of several signals to enter back into the trend. Buy
the dips in the UT. When AO dips below its own 0 line look for your entrance; this is one signal
to look for with these indicators.

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Also inside these indicators is the RSI 2 (Relative Strength Index); which gives you a signal to
start setting your pending orders. It looks like this and is the gold colored lines. When put
inside the slope indicators it flattens out at the top and the bottom and gives you the signal
that you have a dip in the UT. See # 1-5 below. So when price is above the 240 you are looking
to enter buys, the RSI 2 signals to set your pending orders and the AO confirms your entrances
and warns you to exit. See the light blue areas numbered 1-5 below.

10.4 BUY TRENDING TRADES

Now lets us walk you through a series of trades. First an UT trade using EUR/JPY. Price is
above the 240 MA so we are only looking for buys. The chart above shows that we have 5
signals given by the RSI 2. On the chart below I labeled the weeks 1, 2, 3, 4a, &4b. 5 trade
signals in 4 weeks. This is what it looks like on the chart. The yellow vertical lines show the
beginning of the signal and the end of the signals are at the end of the blue box. During this
time, which is 40 hours for week 1, we have a dip in the UT. We are looking for our best
entrance back into the UT. Same thing for week2 and week 3 but week 4 shows 2 signals. I
labeled them 4a and 4b. So we have 2 signals being given in each week 4. 1. Price is above the
240 line and RSI 2 is bottomed out. Time to set our trades.

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EUR/JPY TRADE SCENARIO #1:

The week begins and there is a retrace from last weeks move. The AO turns orange and the
RSI 2 goes from top to bottom. When the RSI 2 reaches the bottom and flattens there (light
blue area) we prepare our pending trades.

LETTER ARSI 2 goes below and hits bottom. The AO is orange and price action is below
WMR1 MID PIVOT (orange dotted line, I put a blue x there). So while price is dipping in an UT
during the green box, you place a pending buy stop trade at Ax. You have plenty of time since
5 x 4H bars = 20 hours so there is no rush. When placing your trade you can set your SL
around the 240 line, figure your lot size (we will get to this later) and set a TP at WR1 (Solid
orange line or the mid pivot above it WMR2, the second dotted orange line)

LETTER B-- RSI 2 stays flat and price goes below the WP (solid yellow line). So we place our
second pending order above the WP. Price finally reverses and heads back into the long term
trend. It enters at Bx and enters a second trade at Ax. When price enters Ax the SL is moved up
to BE (breakeven) and now we cant lose. The worst that can happen is a BE trade from here
on out. When price moves well above the WMR 1 we can move the SL to just below that
dotted orange line and secure our profit.

LETTER CPrice moves above WMR1 and we place our third pending at letter C but price
never reaches it.

LETTER DThe AO turns orange and we exit the trade. Trade Bx is around 170+ pips and trade
Ax is around BE + or pips. Not a bad week for the EUR/JPY. RSI 2 If we played % of our
account on this trade we would have increased our account over % if we played 1% of our
account we made about % and so on. Next week however we get a picture of a perfect 10.4
trade. Lets go to week 2. We will talk about money management later.

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EUR/JPY TRADE SCENARIO #2:

The week begins and there is a retrace from last weeks move. The AO turns orange and the
RSI 2 goes from top to bottom. When the RSI 2 reaches the bottom and flattens there (white
area) we prepare our pending trades.

LETTER A, B, C, DRSI 2 goes below and hits bottom. The AO is orange and price action is
below WMR1, we set our first pending order at Ax. As price continues to retrace we keep
adding positions at Bx and again at Cx. Finally price moves up and we add a position at letter D.
With each order entering we move the SL to BE and we can enter positions continuously and
increase our profits. If we had set our TP at WR1 there is no Letter D, if we set our TP at
WMR2 then we have a trade D.

Totals for the weekLetter A 120+ at WR1 or 210+ at WMR2; Letter B 240+ at WR1 or 330+ at
WMR2; Letter C 330+ at WR1 or 410+ at WMR2; Letter D 0+ at WR1 (Not entered) or 60+ at
WMR2. It is the end of the week and you can close out or carry into the next week. Me I close
out and take my wife out to dinner. If you played % of your account on every trade your total
pip count at WR1 is 660 pips and you increased your account by approx. 2% give or take. 1%
would have increased it 4% and so on. If you played WMR2 then your pip count would have
been 1000 pips. Multiple profits, multiple entries, multiply your account depending on lot size
5-10% that week on just one series of trades. Your biggest risk would have been % of account
or 1% at most because once the 2nd position is entered you move your SL to BE and are never
in a losing position again. However, you can multiply your winnings but never your losses.
That is the basis of 10.4.

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EUR/JPY TRADE SCENARIO #3

The week begins and there is a retrace from last weeks move but not as big. We will also get
our first signs of price exhaustion. The AO turns orange and the RSI 2 goes from top to bottom.
When the RSI 2 reaches the bottom and flattens there (white area) we prepare our pending
trades. The AO does not dip below its 0 line so it is showing a strong move. We use RSI 2 only
now for setting our pending trades. We also know we will only get 1 or 2 entrances when this
happens so think accordingly. Your super week was last week. We set our pending trade A and
B however you will notice C happens. RSI 2 does a stutter. When we see RSI 2 stutter we
immediately pull our SL up and place just below the last S/R/MR line or MS line if it is in play.
This week price did not go below the MR1 so it continued and entered at B. We TP at WMR2.
You could have tried a pending at D with the AO still at green but RSI 2 is topped out; but it
was late in the week and probably not a good idea. However greed sometimes can be good or
bad. Letter A TP a WR1 was 180+ and at WMR2 280+. Letter B TP WR1 no entrance at WMR2
over 90. So for the week 180+ or 270+ pips depending on your TP point.

If you had the guts to go for D then 400 + 220 + 100 = 720 or you tripled the pips with that 3rd
trade. Like I said greed can be good. At worst you had a BE trade for trying. At best you tripled
your pip count. The beauty of 10.4 is you will not lose if you keep moving up your SL. A third
play would be to close of your profit and try for the extra. At least you dont lose a whole
weeks worth of pips in the greed grab moment. Either way AO has 3 humps above the 0 line
so I definitely close out all at the end of the week.

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EUR/JPY TRADE SCENARIO #4:

The week begins and there is a retrace from last weeks move. The AO turns orange and the
RSI 2 goes from top to bottom. When the RSI 2 reaches the bottom and flattens there (white
area) we prepare our pending trades.

A&B enters and goes into profit but we have a very strong warning that price is not going any
farther. At C RSI 2 goes below the AO. This means the move does not have a lot of strength.
Protect your profit and bring your SL to just below the latest WR/WS/WM line. IF AO goes
orange (Letter D) or RSI 2 goes below the AO bars just close out. Letter A is 180+ Letter B is
BE+ or depending on where and when you close. There is another trade at Letter E but we
know we have been warned about weakness twice now by RSI 2; once last week and again this
week. The third time is a losing trade at least so far but it did move over 50+ pips into profit
before reversing so with the 2 warnings you could have brought your SL up early to protect
from a loss. You can close out and take the loss or see if the trend continues next week and
you recover the trade. Either way your take for the month will be impressive.

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10.4 INFORMATION PAGE

Well if some currency pairs are in an UT then something has to be in a DT. One of my rules of
Forex is What goes up must come down and what goes down must come up So if something
is going up lets see what is going down. I want to introduce my 10.4 INTRO PAGE. I can look at
one page and see what is happening across the board on my charts. I keep 4 things on this
chart and put it on a currency pair I am not trading. With IBFX I put this on the EUR/DKK since I
dont think it is worth my while to trade this pair.

On the upper left I have the I-breakeven Indi. It will list the pairs that have open positions and
what the price would be if you had a breakeven point of the trade. So if you have 2, 3, 4 open
positions it will calculate the price for BE. It will do the math for you.

The second is the Slope Strength Indicator. Showing strength based on the daily chart. Each
pair is rated by the strength of the move it is in. It has been showing JPY weakness for a while
so if I want to know what is showing strength I can find it here. We have the EURO and CHF on
top showing strength and AUD and JPY on the bottom showing weakness.

The bottom is the Exposure Indi. It shows all your trades and whether they are in profit or loss.
With one look you can see how each currency is doing with your trades. I usually reference this
whenever I have walked away from my computer to see if anything has changed since the last
time I was there.

The MPTM also goes on this page. It manages your trades once the trades have entered. It will
be in the upper right hand corner. 10.4 is having its own MPTM designed for the system.

I showed you EUR/JPY as my buy because the EURO shows strength and the JPY shows
weakness. So how can I show sells with this system. I will look at the chart and decide on?

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10.4 SELL TRENDING TRADES

So here is the GBP/CHF monthly chart and it has been drifting south for 5-6 months now. Let
us look at sell trades using 10.4.

Week 1 shows a ranging market. This is seen by a flat 240 MA. I will deal with ranging markets
later but for now you wont trade this pair this week until it gives a clear trend trade signal. As
far as trend trading there is no trade here this week.

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GBP/CHF Week 1 is a range trade and they are different than trend trades. I may/will deal with
these later. Most likely I would go find other pairs to trade that give better signals. So week 1
no recommended trades ignore A,B,C,D on the chart below and go to week 2.

GBP/CHF Week 2finally towards the middle of the week we get a signal RSI 2 is flat-lined on
top of the indicator, so we set pending trade A and pending trade B to pick up two trades. We
close both at the end of the week. We close when the AO turns green or when RSI 2 crosses
back into the AO; either spot warns you that the run is over. Trade A is 70-100+ pips
depending on the close and trade B is BE + or -. Not every week is a home run week like
EUR/JPY.

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GBP/CHF Week 3You may be wondering why I chose the GBP/CHF to show sells. I just
wanted to show an ugly pair I hate to trade and here is why. The signals just are not as good
even though the pair keeps drifting down in price action. GBP/CHF is that kind of pair. It will
just drift and drift and drift and wont retrace to get a clear rally in a DT. In week 3 it had a
moment of a signal for about 8 hours. If you want to trade this pair good luck. I only seem to
lose money on the dang thing. This is what a drifting DT looks like with little or no retrace.
Knowing the GBP/CHF and other CHF pairs trade like this may help you to enter these drifting
price actions. Trade A gives you 100-150 pips and trade B may be profitable at the very end of
the week where it drops like a rock if you waited it out that long. I showed the second trade
signal letting you know trades can do this on Fridays. The A trade and B trade did not hit their
BE line so if you followed this to the end trade A +320 pips and trade B about +230 for a +550
pip week. Even a short termed trade signal can give a profitable series of trades during a
trading week. Honestly, I hate this pair. In the cart below I made a light green box in the
bottom indicators to show we don't always get a good strong signal. No RSI 2, no WP to cross,
no re-tracement to take. Yet it floats downward for 200 pips during this time. The AO however
shows it is going deeper. Anyways you cant have them all when you are trading.

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GBP/CHF Week 4You see at letter A a trade enters and goes nowhere. I put a check of RSI 2
failure so at B you have a chance to close for a very small loss. If you didnt get out you are
closing in on the SL line of 240 however, you do have a good signal for another entrance back
into the DT. You will have to see what happens next week. Does he lose a trade finally or can
we make it profitable with a second entrance. If you do enter a trade, no matter what happens,
your SL is at the 240 line. But this looks like a real good trade back into a DT if it happens. Any
way that is the good with the bad and even with the bad we can walk away with some kind of
profit over the last 4 weeks.

GBP/NZD Now let us look at something much better, (HA, HA maybe) one of the wildest pairs
you can trade and the most volatile pair among the 7 major currencies is the GBP/NZD. You
lose fast and win fast with this one. In 10.4 we can give trades lots of room so this pair can
become tradable.

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GBP/NZD Week 1At A you would have 2 entrances. At the beginning of the week you take
the profit because price usually runs at the end of the week not the beginning. So you would
close at WS1 for 140+ and 60+ or it retraces back to BE.

At B you again have two trades but the S1 trade would have come first. With the second signal
you could have added a WMS1 and they both would have run to where you could have closed
them for a BE or end of week close for 150+ and 70+ for 220. Depending on what you did with
your trades you could have had a 0 pip week or 420 pip week. That is the GBP/NZD. It is a wild
pair to trade.

GBP/NZD Week 2Trade A would be +170 at the check mark and the second entrance would
be +50, However it is possible it retraced enough to hit your BE point. Dont know why you
would take the trade since neither the AO nor RSI 2 gave a clear signal. You could have taken a
break on the previous low though. Trade B you would be happy with a BE because price just
did not move anywhere. Week 2 is a lousy week.

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GBP/NZD Week 3If you catch these price action moves right the GBP/NZD is a very
profitable pair to trade, but beware it is highly volatile. Trade A is WS1 for 200+130+60= 390 in
16 hours. Trade B has RSI 2 and AO above the 0 line but you get a BE or +60 on this one. At its
height it was +120 and +60 at one time. Forex is a test of your nerves and GBP/NZD will test it.
Then look at what happens at C. You decide to take the WP break just to see what might
happen. WP break and WMS1 takes and retraces for a BE. You try again and bingo it takes a
Friday ride. WRM1 +230 +180 + 100=510. Sometimes you get lucky. You may say why would
you even take the trade? When AO goes above its 0 line and reenters the trend it usually is a
strong move at some point. RSI 2 is not a factor in this decision; we went with AO and WP
cross. Sometimes it works.

GBP/NZD Week 4 is a reversal week. If you took the WP cross with the RSI 2 signal you had a
good trade that broke even or closed with some profit at the orange vertical line. When AO
turned green you would close the trade because the run is over. You may end the week with a
small losing trade or a winner. I did not make it on the chart but it would have been a trade
from WR1 to WRM1 but it would be a risky trade which if it goes back into the trend could be
a very good trade the following week or it is getting close to hitting the 240MA SL. (On
Monday it dropped over 200 pips and I was in it with 2 levels)

25
I AM NOW READY TO GIVE MY SECOND DEFINITION:

SELLING A RALLY IN A DT AND BUYING A DIP IN AN UT CAN BE DEFINED AS A

MOVE THAT DOES NOT RETURN PRICE PAST THE FUNDAMENTAL LONG TERM
MOVEMENT OF THE CURRENCY. WHEN THE RE-TRACEMENT IS DONE THE TREND
WILL CONTINUE BACK INTO ITS LONG TERM FUNDAMENTAL TREND.
Since these dips/rallies can have various strengths of movement it takes different indicators to
determine when the rally/dip should be entered back into the trend. We use three indicators
to determine the end of the rally/dip; then we use breaks in S/R/P/MS/MR lines as entrances
as the safest way to enter these trades back into the trend.

So the three indicators we use to determine reentries are:

1. RSI 2

2. AO

3 Weekly Pivot Line

OUR TWO DEFINITIONS SO FAR

A FUNDAMENTAL TREND IS THE LONG TERM MOVEMENT OF A CURRENCY USUALLY CAUSED

BY GOVERNMENT POLICY AND CAN BE EASILY SEEN ON A MONTHLY CHART.

SELLING A RALLY IN A DT AND BUYING A DIP IN AN UT CAN BE DEFINED AS A MOVE THAT

DOES NOT RETURN PRICE PAST THE FUNDAMENTAL LONG TERM MOVEMENT OF THE
CURRENCY. WHEN THE RE-TRACEMENT IS DONE THE TREND WILL CONTINUE BACK INTO ITS
LONG TERM FUNDAMENTAL TREND.

26
 LET US REVIEW TRENDTRADING

SUMMARY OF A TREND

1. Trends are long term and are usually caused by govt. policy.
2. The monthly chart can give you the trend without knowing the cause behind the trend.
3. This trend is then transferred to the 4H chart.
4. You can spend months or even a year on a single trend move.

BUY TRADES BEST CASE SCENARIO.

1. When price is above the white 240 MA line on a 4H chart, you set your pending trades
with the following signal(s). The signals can be used together or separately. You do not
need each one to agree to set pending trades you can go with only one signal and the
240 MA line.
2. RSI 2 is flat-lined on the bottom
3. AO is below its 0 line
4. You will be crossing the WP back into the trend.
5. AO has turned to a green bar showing an UT has started.

SELL TRADES BEST CASE SCENARIO.

1. When price is below the white 240 MA line on a 4H chart, you set your pending trades
with the following signal(s). The signals can be used together or separately. You do not
need each one to agree to set pending trades you can go with only one signal and the
240 MA line.
2. RSI 2 is flat-lined on the top.
3. AO is above its 0 line
4. You will be crossing the WP back into the trend.
5. AO has turned to an orange bar showing a DT has started.

WHEN YOU FIND A SERIES OF TRADES YOU LIKE:

1. Determine lot size by how much of your account you are willing to risk on a trade by
using the MM indicator in the upper right hand corner of the chart.

2. MM indicator will be explained later in this paper.

27
STOPLOSS

1. Place the initial stop-loss of your trade at the 240 line.

2. You move the stop loss to BE with each multiple trade entrance.
3. This leaves you free to trade without risk from now on with this series of trades.
4. At worst a trade will break even (BE)
5. At best you will have multiple profit trades that will make your profitable trades bigger
than your losing trades.
YOU EXIT TRADES WHEN:

1. You get to S1 or R1 OR you get to WMS2 WMR2 (The second mid pivot lines)
2. The RSI 2 line has broken back below/above the AO histogram bars
3. The AO has changed colors; for buys the bars changed to orange; for sells the AO
changed to green.
4. You have massed several levels of pips and you are scared to death you will lose them.
5. It is early in the week Mon-Wed. and price usually does not run then. You have 1 or 2
profitable levels so keep your profits, pocket them and put them in the bank. Best TP
times are through the EUR session, way through the USA session, end of the trading
day, and 2-3 hours into JPY session.
6. Multiple level runs are usually on Thursdays or Fridays and they are the best days to let
your winners run until the EURO closing on Friday. In other words Thursday and Fridays
are the best days to push for more; Mondays and Tuesdays just close out those profits
and put them in the bank.
7. It is the end of the week and price usually retraces at the beginning of the week. So you
close your trades on Friday to keep them from gaps that happen over the weekend. You
cannot control weekend news and gaps can sometimes run in hundreds of pips.
8. Bring your SL to BE on the 2nd, 3rd, and 4th entrances. This allows you to make bigger
profits down the road because you are no longer risking a loss but are multiplying your
profits.
9. You may also lose the profits you have gained by holding onto trades too long or closing
them too early. I have learned never to beat myself up by not having the ability to
predict the future. Sometimes you win, sometimes you lose, but those of you who play
poker and have gone all in know the feeling. The difference here is you don't lose all
you have in front of you, just what you have put out on the table after you have had
some winning hands. You can grab what is there or you can go for more. I look forward
to having those occasional 3 or 4 level profit trades.
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 MONEY MANAGEMENT

THE KEY TO LONG TERM SUCCESSFUL TRADING

What is a successful trader? Well, some of that has a personal answer to it. People trade for
different reasons. Of course people trade to make money but what a person considers success
can vary. However, if there was anything clearer in trading this next statement makes the most
sense.

TRADE IN A WAY SO YOU CAN TRADE AGAIN TOMORROW

Everything I am going to teach now has everything to do with being able to trade again
tomorrow. It is advice based on years of experience in trading and was learned the hard way
by paying brokers their tuition fees (my losses in the school of hard knocks).

FIRST: I am a low leverage, small lot trader, who tries to get others to trade a similar style. I
trade to trade another day. I am a singles and double hitter who occasionally hits a home run.
At 57 years of age and a person who plays baseball almost year round. I hit 3 home runs last
year. My trading is the same. I just keep getting on base and enjoying the game.

SECOND: I trade for investment reasons not income. This allows me to think long term and not
short term. Somehow I make fewer mistakes and am more patient with my trades taking this
position. I try to get 10% a month, sometimes I do sometimes I don't but look what 10% a
month will do over 5 years. Very few people can accomplish that, even among professional
traders. So be realistic as a trader, it is not like winning a lottery, well 10.4 might do that.

THIRD: low leverage allows me to trade long term and hold onto trades. High leverage will eat
you up with swap costs. What are swap costs? Well when you trade you are borrowing money
from your broker to trade with. It is not your money it is his or some banks. To be a broker in
the USA you have to have Millions and Millions deposited somewhere to cover your costs and
your customers accounts. I always want to trade with a profitable company; my funds should
be safer there. I never begrudge my broker making money. He makes money so I can make
money. I need him to loan me 10-100s of thousands of dollars so I can make money too. So
you dont get it for free.

29
If you trade 50:1 leverage that means for every dollar you put up the broker can put up 49. He
will charge you interest every day on that money borrowed. However, if you trade 400:1 for
every dollar you put up the broker can put up 399. That increases your costs 6 fold on interest
or swap. For a day trader who is in and out the same day or next day. These costs are
meaningless. For people who trade long term these costs can add up over time. The real big
boys dont dare trade over a 10:1 ratio because the interest costs would eat them up.

NOTE: I do make an exception for new traders however. Make no mistake you are going to
lose money in the beginning unless you have a very good teacher(s) or previous experience. In
other words just like doctors, teachers, attorneys, etc. you are going to pay tuition for your
schooling. How much tuition you are going to pay though is the key. To pay the lowest amount
in tuition learning the Forex business you need to set up a penny account with a high leverage
broker and look at those funds as tuition costs. The higher the leverage, the less money you
will spend on tuition. If you cant make 100 dollars grow to 200 you wont make 1000 grow to
2000 or 10,000 grow to 20,000. If you dont have the patience to grow 100 to 200 dollars and
then 200 to 400 and 400 to 800, then get out of Forex, it is not for you.

RATIO VERSUS PERCENTAGE TRADING MM

RATIO AND RATIO TRADING

Probably one of the most talked about concepts in trading is trading ratios. Basically it means
to make sure your trade should win more pips than it loses. This is called the ratio. For
example if you trade a 2:1 ratio and you use a SL of 30 then your profit target should be 60
pips. 1.5:1 would be 45 TP 30 SL; 3:1 would be 90 TP and 30 SL, and so on. If your win to loss
ratio is not there dont take the trade.

That is one way of looking at it. My problem with it is ratio trading is a very difficult thing to
learn and master. Very, very few ever do. The reason ratio trading doesnt work well is
because price action is very unpredictable. If you remember Dark Stars teaching about Forex
is it isnt about traders it is about businesses, govt., companies, individuals, exchanging money.
This can make the market move suddenly at any time. If Saudi Arabia cashes a check from
Exxon Corp. for X amount of millions or billions of dollars the market is going to move and no
fundamental knowledge or indicator is going to tell you this is happening. If all the world-wide
big banks get spooked (like in OCT. 2008) and they decide to dump large portions of their
foreign exchange reserves and buy the dollar. OR like what happened to me once; the CHF
bank decides to set a floor to their currency and the GBP/CHF jumped 800 pips in less than an
hour, (my best trade ever just luck really) There are no predictors to these events. They
happen, and they happen on a smaller scale every single day.
30
Sooooooooo, what is a pip since we will be trying to get as many of those suckers as we can? A
pip is a hundredth of a penny if you are trading USD pairs. It is a fraction of a penny or slightly
larger with other cross pairs. Somehow trading gurus all over the world teach have a tight SL.
30 pips is 3 tenths of a penny. Sheesh you wonder why your SL is getting hit all the time.
Most traders are blaming their brokers (now I am not so naive to not believe there are
computer programs which brokers use to hit your SL with so they can pocket money) but you
are playing with fire to think that there are sells/buys of Forex currency at any time that can
take your SL out at any moment. 3 tenths of a penny is nothing and doesnt exist outside of
computer program. Can you imagine telling your stock broker I want a100 shares of Disney
stock at 100 dollars a share but if price hits 99.9970 (100.00 - .003 or -3/10 of a penny) close
out the trade I dont want to take a bigger loss than that. That is what many are trying to
accomplish in Forex and it only leads to SL hell.

I did a study in the summer of 2012 and found out, I could be profitable with a 3:1 to 4:1
profit to loss ratio and have a win percentage of 30-35%. My issue was could I hit 90-120 pip
winners regularly with a 30 pip SL. If you think about it, that is a daunting task yet trader after
trader after trader that is exactly what they are trying to do. It is no secret in Forex that the
majority lose money. It is not the 90-95% often quoted but brokers in the USA are required to
report the % of winning and losing traders every quarter. Depending on the broker most
report that 25-35% had winning months and I imagine most of them it wasnt by much. In
other words if you make money you are in the top 30% or so and if you can do it consistently
you probably are in the top 5-10%. Forex trading as a business would never stay in business if
95% of the people lost money, brokers do actually need traders to be successful to stay in
business. So quit trying to blame the broker/bank every time you take a SL. Maybe trading 3
tenths of a penny SL is the real problem. Does it not make sense to you that overly tight SL
maybe the real problem to your success?

After years of trading, I made the most consistent money not using SL and having a win
percentage close to 75-80%, managing those 15-20% losing trades successfully but that last 3-
5% killer trades could set me back weeks of trading profits. All in all I could get through a year
on the profit side. I have been called many names for trading like this but it worked and many
others I have taught found it to work. However, that is not 10.4. But those years laid the
foundations of 10.4. 10.4 basically is my final product for keeping my high win ratio, managing
occasional losses, and totally eliminating the killer loss trade. This is why I know that this is my
last trading system; I finally solved all my trading issues and problems. 10.4 keeps me in the
ballgame with reasonable trade sizing based on sound MM and trading skill with technique.

31
Trading came down to this last piece of the puzzle for me to solve. Getting away from the killer
trade but keeping my winners. It came down to a different way of thinking win to loss ratio.
Not the standard 2:1 or 3:1 but limiting my loss to % to 2% MAX of my account but
compounding my profitable trades at times so they would increase my account 2-10%
depending on price action.

So what am I proposing, instead of trading ratio let us trade according to percentages. 10.4 is
designed around this concept of trading a percentage of your account instead of trying to get a
ratio. Let me see if I can explain this in a way you can understand. Whether you trade
according to 10.4 or not this can be used with any trading system.

A DIFFERENT APPROACH RATHER THAN RATIO TRADING

I explained the foundation almost a year ago in a thread at www.SteveHopwoodForex.com I

copied and paste it here. I did modify this paragraph changing some words and grammar for
clarity but didnt change the meaning.

Think of it this way. There are traders who do not use their entire lot size in one entrance.
They break it up into 3 or more parts and enter on multiple levels. Let us say you like trading 3
lot sizes at one time. Instead of entering all three at once you enter them as 1 lot size at 3
different spots. This allows you the flexibility to find the spot you want to enter in. Let us say
you enter one lot but some sudden news story breaks and gives a pair a 2 or 3 day temporary
reversal. Well when that run is done you can enter your 2nd lot and then the third at a
retracement to get your trade back to breakeven or back into a trend. You phase in your lot
size.

This also helps in case you are just plain wrong with your trade. Instead of taking a 3 lot loss
you now only take a 1 lot loss not having played your whole position. To me this really helps
your money management in that you still play your 3 lot size on winning trades but not on
your losing trades, unless you have really blown your entrances. If you can grasp the basic
principle and follow long term trends then you can make most of your trades profitable. I am a
fan of small lot size to account size so as to make trading a relaxing and sometimes boring
affair. The concept that you can make pinpoint entrances when you are dealing with a
hundredth of a penny move seems ludicrous to me. Give yourself some space and allow trades
time to become profitable. Most currencies really only change direction a handful of times a
year you just need to give yourself the room to stay with a price trend. Check your monthly
charts and you will see what I mean. Good luck.

So that saved me a half a page of typing. Here is the concept, trade percentage of account
instead of ratios. The MM indicator is designed to help you with your lot sizing and the placing
32
of your SL. First let us take a look at the indicators and then how to use it. I already explained
multiple entrances in trend trading and taking a single SL for smaller losses. Moving your SL up
so all trades after the first entrance are going for more profit but will no longer be a loser since
we move up to BE at the 2nd, 3rd, or 4th, entrances.

10.4 MM INDICATOR

At the time I write this the indicators may not be in its final form so dont be surprised if it is
different than the one I picture on this page. Basically this indicator is designed to show you
proper lot size and SL settings. Remember these numbers are approximations and not exacts.
They are meant as a guide so you will properly set your lot sizes to SL setting.

If you look at the chart look at the yellow #1. It shows the present price of the currency pair of
the screen it is placed on. It is the same as your bid line which is #4. #2 is the distance from the
bid line #4 to the 240 MA line #5 on the 4H chart. It will read the same numbers no matter
what time frame you switch to. This number is important in that we are going to use it to place
our SL. Now based on this information we are going to place our SL and calculate the lot size in
section 3. Section 3 will automatically calculate your lot size based on your account size for
you. If it says .01 that is a penny lot for penny brokers and dime lots for dime brokers. So how
much do you want to risk on a trade? You can choose % of your account, 1%, 2%, or even 3%
by adding 1 + 2 to get 3. That is how much of your account you will lose if price moves and hits
the white line or the 240 MA on the 4H chart. You determine the percentage of account loss
you are willing to take. That is your Maximum loss. However that isnt your max win. With the
ability to add positions but not added risk you can double or triple your percentage of gain but
you do not increase percentage of loss.

So this is how it works, you determine the maximum loss you are willing to take on your
account whether it , 1, or 2% for your next trade. For 1000 dollar account 1% is 10 dollars 1/2%
is 5 dollars and 2% is 20 dollars. At 1% it would take you 100 losing trades in a row to lose your
account. At % it would take 200 trades and at 2% 50 losing trades in a row. Now I have had
some bad days, weeks, and months but nothing like that has ever happened to me. I have had
a handful of trades going on at the same time that have wiped out accounts but that was
because I didnt size my lot sizes properly set to account size. Sound familiar to anyone?
Instead we will predetermine our SL lot size based not on a win/loss ratio but on a percentage
of the account using a trading system that has a very low percent of losses.

So if you look at the screen a 2% loss with a SL set at the 240 MA line would need to be 3
penny trade. If you dont have a penny broker and the smallest lot trade is 1 dime and you
had a 500 dollar account, you would be risking 6% with a 10 cent lot. If you had a 1000 dollar
33
account you would be risking 3% and a 3000 dollar account 1%. Me, I have one lot size I trade
all the time that approximates a 1-2% commitment. Some pairs it will be more some pairs less.
This keeps me from doing the math every time.

So this indicator is meant for you to trade in such a way that you can trade tomorrow and the
next day and the next day and so forth. It is also meant for you to trade small enough that
your success or failure is not based on one trade but multiple trades. Winning small amounts
and trying to be constantly profitable is tough. Hitting a trend run and getting two or more
positions going adds to the account quickly. Moving a SL up with each winning position gives
you confidence knowing you cant lose but you have a chance at a bigger payout than any loss
you would have taken. You multiply your winners into larger percentages but your losses are a
fixed percent specifically set far away and if hit cannot hurt your account. If you know the
biggest loss you will take is 1% but the biggest win can be several percentage points because
you are learning to phase into a winning position with multiple positions, dont you think that
would help your long term trading? See pic below for MM indicators.

34
DIVERSIFYING YOUR TRADING

I talked about how trading stocks and using a 3 tenths of a dollar as a SL would get you
laughed off of the trading floor. I dont know any stock broker who would recommend such
trading tactics but it is very common in Forex and if you suggest otherwise makes you get
treated like an idiot. I know I have debated such ideas at Forex Factory. However I have seen
nothing that changes my feeling on that. Yes if you trade large lots and high leverage you get
caught in this type of trading. Brokers love it because they get to pocket your constant losses.
If I understand brokers and how they operate they not only get to keep your spread but also
the money you lose. Some people erroneously refer to this as trading against their clients (yes
there are brokers who do that but.) what they really do is match up trades with other traders.
For example lets say a broker has traders and their total trades of EUR/USD are 100 lots of
buys and 120 lots of sells. They have a risk of 20 lots that could go against them. They then can
put those 20 lots out on the open market and keep the rest in house. I am sure that is the only
way penny and dime brokers can do business. No big bank wants to deal in penny and dime
orders. So the brokers combine everything and only farm out their risk. This is not trading
against you just pitting you up against another trader. When you close your trade they just
match up the other trade with someone else. They make a profit and you get to trade with
small amounts of money. Now if you close your trade as a loss it is kept in house and any win is
paid out back to your account. The broker has nothing to worry about until you ask for a check.
If you are a losing trader they get to keep the funds. It is a rather high profit business.

This is all done by computer and is automatically done inside a computer. Market price comes
in and you get to play. You win or lose money, the broker makes good money and the banks
he does business with get his large orders to cover his butt just in case a group of traders
actually make money. Inside this computer program (I have no proof of this just my thoughts
and experiences) the computer can do things which can cause you to have your SL hit or your
account to margin out. If price is within a certain range of your SL they can expand the spread
for just a moment (market conditions) and go back and hit the SL. Same thing with margin calls.
I cant tell you the couple of times I hit a margin call on my account and price would almost
immediately go the other way after it got cleaned out. Now can I prove any of this? NO. But do
I think it happens? YES. So how do I solve this problem? Percentage of account trading moves
the SL so far out of range they cant spike you out of a trade anymore. Percent of account
trading means no more getting knocked out on a margin call because you arent trading big
enough lots for them to do it. So how do you make money then?

35
Diversifying your trading will solve part of this problem. If you go to a financial advisor and you
want to set your portfolio for long term investing the advisor will tell you to invest and
diversify your account; so much in stocks, bonds, real estate, metals, liquid savings, etc. In this
way if one industry gets hit the rest of your portfolio will protect your assets from wipe-out.

One of the frustrations I had early in my trading was I would trade the EUR/USD and it would
move10-20 pips but the GBP/USD would move a 100. So the next day I would trade the
GBP/USD and it would move 10-20 pips and the EUR/USD would move 100 pips. So the next
day I would trade both and they would both lose and something called the NZD would move a
100 pips. It drove me nuts. Eventually I ended up trading all 20+ pairs and entered everything.
If I caught the market right it was great, if I didnt dang account damage. Now I diversify. I
dont load up on all 6 AUD pairs or Euro pairs or USD pairs. If they all look good I trade 2 or 3 at
one time and leave the rest. I make sure I trade different pairs just in case something happens
I get something. That is how I lucked out on the GBP/CHF trade one day. I placed the trade to
balance out my trading day. I had two CHF trades that day and it was a WOW day. I also had
some NZD, AUD, USD, EUR, CAD, going. They went nowhere or were losing trades but those
two CHF trades allowed me to have a 1400 pip day even though most of my trades that day
were losers. I diversified and didnt get loaded up into just one or two pairs.
I cant tell you how many trading days the market was slow but the CAD/JPY or EUR/CAD took
off and made my day. You just dont know what will happen on any trading day give yourself a
chance to catch an unusual move. Trends are trends. Let me ask you, have you ever traded the
AUD/CHF, look at this chart and tell me why not? 8 changes of directions in 4 years, that is
really consistent.

36
How about the GBP/CAD, I consider this one of the best kept secrets in Forex. It is a great
range currency pair. See that green bar that measures its high from its low in the pic below?
That is 1000 pip range. Thats it that is all it moves, no wild swings no account busting moves.
Every month place a sell someplace in the top 20% and a buy in the lower 20% area and let it
ride. I put a BB on the monthly set at 20 and deviation 1 and go trade. The biggest distance
from the top band to the high blue line and the bottom band to its low blue line is 300 pips at
most. The distance from top band to the bottom band is 400 pips. Once price goes outside the
BB band and comes back inside is a very nice trade. I only know this is because I am not afraid
to diversify. I look for these types of things to trade.

\
My point is this; you see lots of setups at once, diversify and take some of each. Dont get
caught having 6 AUD trades going against you at once. Maybe have 2 and save the others for a
better signal or mix it up so you have some buys and some sells going at the same time.
Remember if one currency is going down that means something else is going up. JPY is going
down at the time of this writing, what currency is going up and ride it also. Diversify and
protect your account.

37
RANGE TRADING THIS IS NOT COMPLETE AT THIS TIME

For the last 8 months the AUD/USD has been sitting in a tight range of 450 pips. For a monthly
that is tight range. So how would it do with 10.4, let us take a look.

Here is the 4H chart showing 3 months of AUD/USD range. Yes there were two weeks of no
visible signals to trade but there were 8 weeks 7 buys and 1 sell. So during this tight trading
range 8 of the 10 weeks we got signals to trade. Most of the trades were from one level to
another but there were a couple of multi-level trades. So if you see price hugging the 240 line
you only look for 2 trades that most likely will go up to the 3rd line from the first entry. No
home runs but still pips to be made.

38
In the 10 weeks before that we have some very definite moves and there 7 buys and 2 sells in
7 weeks of trades. So there were 3 weeks of no trades.

So let us make another rule. There are times when you dont get a good clear signal to trade.
So a definition to do not trade is very simple:

DONT TRADE WHEN THERE ARE NO GOOD CLEAR SIGNALS.

So some of them i marked above are very close to not being a good clear signal. I doubt it very
much that every currency pair will have a week where no signals are giving. Just move on to
clear signals instead of forcing a trade. When price is crossing back and forth across the 240
MA line we can call this a Ranging Market. So let us get to our next definition. What is a
ranging market?

A RANGING MARKET IS WHEN PRICE IS CROSSING BACK AND FORTH ACROSS THE
240 MA LINE AND ANY SIGNALS GIVEN DO NOT MATCH PRICE ACTION

39
When does a ranging market end and when does it begin. We will define these like this. A
downtrend begins with the first DT signal showing up in the indicator. This will almost always
be the RSI 2. Look at pic below.

1. This is our last UT trade signal.

2. Price breaks below the 240 MA there by canceling the RSI 2 signal at the bottom. There
is no trade here.
3. Price retraces but does not break back through the 240 line. RSI 2 has topped out so we
set our pending trades. The new DT would start here and we start trading again.
4. Sell trade back into the down-trend.
5. Sell trace back into the DT.

40
Let us look at a change from a DT to an UT. An UT begins with the first UT signal showing up in
the indicator. This will almost always be the RSI 2.

1. A DT signal is given and you either profit 1 level or if you added a 2nd it goes back to BE
for no gain.
2. Price crosses the 240 line so the #2 sell signal is not valid.
3. Price crosses the 240 line again so the #3 buy signal is not valid.
4. Price is above 240 MA line and a buy signal is given by the RSI 2. We have now switched
into an UT.
5. From 4-5 price just bounces around but at 5 it takes off and you can get a 1 level or 2
level 2 trade profit.
6. A signal is given and price goes nowhere.
7. A signal is given and price goes nowhere.
8. Trades 6 or/and 7 are losers and you take a loss at some point

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 THE SEVEN DEFINITIONS
1. A TREND IS THE LONG TERM MOVEMENT OF A CURRENCY USUALLY
CAUSED BY GOVERNMENT POLICY AND CAN BE EASILY SEEN ON A
MONTHLY CHART.
2. SO FAR ONLY ONE SIMPLE RULEBUY ABOVE THE WHITE LINE; SELL BELOW
THE WHITE LINE.
3. A DOWNTREND BEGINS WITH THE FIRST DT SIGNAL SHOWING UP IN THE
INDICATOR WITH PRICE BEING BELOW THE 240 MA ON THE 4H CHART.
THIS WILL ALMOST ALWAYS BE THE RSI 2.
4. AN UPTREND BEGINS WITH THE FIRST UT SIGNAL SHOWING UP IN THE
INDICATOR WITH PRICE BEING BELOW THE 240 MA ON THE 4H CHART.
THIS WILL ALMOST ALWAYS BE THE RSI 2.
5. A RANGING MARKET IS WHEN PRICE IS CROSSING BACK AND FORTH
ACROSS THE 240 MA LINE AND ANY SIGNALS GIVEN DO NOT MATCH PRICE
ACTION
6. DONT TRADE WHEN THERE ARE NO CLEAR SIGNALS TO TRADE
7. SELLING A RALLY IN A DT AND BUYING A DIP IN AN UT CAN BE DEFINED AS
A MOVE THAT DOES NOT RETURN PRICE PAST THE FUNDAMENTAL LONG
TERM MOVEMENT OF THE CURRENCY. WHEN THE RE-TRACEMENT IS DONE
THE TREND WILL CONTINUE BACK INTO ITS LONG TERM FUNDAMENTAL
TREND.

In Inaslkdfhnawiop

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